In North Korea, will work for Choco Pie

Forget Mallomars and MoonPies. In North Korea, the most politically isolated nation on earth, Choco Pies are the preferred sweet snack.

Choco Pies are individually wrapped cakes with marshmallow filling and a chocolate covering. The perennially popular treats, which evoke childhood memories for many Koreans, offer a unique view into North Korea's growing private enterprise economy.

When a factory complex that North and South Korea share reopened last month after a closure ofroughly five months, employees got fewer Choco Pies, which are part of their compensation, NK News reported. While payment in Choco Pies is curious in itself, Korea watchers say reducing the number of treats is significant because it symbolizes a government trying to keep free-market forces in check.

Entrepreneurial North Koreans sell the snacks in the country's large markets, which are tacitly tolerated by authorities. "I would not describe them as 'black markets,' " said Andrei Lankov, history professor at Kookmin University in Seoul. Choco Pies also are exchanged in the markets for more substantial food items and other necessities.

"The North Korean authorities likely want to reduce the number of pies employees receive to something closer to what the employees will themselves consume, thus significantly reducing the sales of Choco Pies to third parties," said Bruce Bennett, senior defense analyst at the RAND Corporation, a nonprofit research group. "The authorities may thus hope to reign in market forces and information flows coming out of Kaesong and into the North more broadly," he said.

A tighter budget resulting from the halt in the complex's operations had cut the number of snacks workers receive, according to the Kaesong Industrial Complex Company Association.

In fact, South Korean companies based in the complex use Choco Pies as a major hiring incentive. "They're easily sellable and valuable in terms of providing money for staples," Bennett said.

Workers at the Kaesong complex also get the equivalent of $100 a month in wages (though it's estimated that the North Korean government pockets between 50 percent and 65 percent of that).

"It symbolizes South Korea's prosperity, sophistication and progress," said Lankov, who highlights the country in a new book, "The Real North Korea: Life and Politics in the Failed Stalinist Utopia." A native of the former Soviet Union, Lankov lived in North Korea as an exchange student in the 1980s. "Like canned beer in the Soviet Union of my youth, [the Choco Pie] shows that the surrounding world is rich and full of wonders—gastronomical and otherwise," he said.

A South Korean worker waits to access the Kaesong joint industrial complex in North Korea.

Two Asian food companies, Orion and Lotte, make similar versions of the product. Both are available in the U.S. and retail for under $4 for a box of 12 small cakes.

But even with Kaesong's reopening and other pockets of free enterprise in the totalitarian state, North Korea's economy drastically lags South Korea's, and the gulf could prove disastrous. North Korean leader Kim Jong-un, believed to be in his early 30s, is just two years into his rule.

A government collapse as a case of "when"—not "if"—has been around for years. But as North Korea's economy further deteriorates under an untested young leader, the nation could be on an economic collision course with its more advanced neighbors, including China.

Korea experts point to a heavy reshuffling of his top lieutenants as noteworthy, but it's not political bureaucrats that North Korean authorities fear most.

"There is this other class of the economic elite that the regime really worries about," said Bennett, who was the lead author of a Sept. 19 RAND study on North Korea.

Byron Wien of Blackstone Advisory and North Korea specialist John Park discuss tensions between that nation and others in and outside of the region.

North Korea's 1 percent

Authorities have been wary of this elite for a while.

A devastating famine during the mid-1990s killed roughly 1.5 million North Koreans, though estimates vary widely. Almost 20 years later, in 2009, sweeping currency reforms essentially wiped out the wealth of the nation's top economic class.

The currency reforms "took away stocks of money people had to bribe authorities," Bennett said.

But the Korean peninsula has deep roots in a thriving merchant class. The currency reevaluation and famine had the net effect of prompting North Koreans to get scrappy about finding their next meal. Efforts to shutter the markets have been unsuccessful, partly because the government has had difficulty feeding the country, Bennett said. The marketplaces allow people to sell goods and ultimately secure food.

Despite such pockets of free enterprise, North Korea's per capita gross domestic product in 2010 was about $1,800, on par with Ghana's, according to the CIA Factbook. In contrast, South Korean per capita GDP has soared from about $1,200 in the early 1960s to more than $22,000.

The gap between North and South Korea is wider than that between East and West Germany before the former regime faltered in 1989. If the North Korean regime were to collapse, an estimated, 3 million refugees would flood into South Korea.

"It would be very hard for South Korea to absorb these people in terms of housing and other needs," Bennett said. The RAND Corporation study describes the possible consequences of a North Korean government collapse. Potential scenarios include a humanitarian crisis, and the use of the nation's chemical, biological and nuclear weapons.

A North Korean 'Arab Spring'?

The bright spot amid all this uncertainty is a growing class of savvy North Koreans open tofree-enterprise practices.They're conducting business in marketplaces. They've created the equivalent of substantial small businesses. They have connections to state trading companies in China. And they know how to flip the acquisition of a few Choco Pies to their advantage.

"North Koreans haven't been so suppressed that they're incapable of becoming part of a market democracy," Bennett said. "You've got seeds of a Western economic system among the North Korean people, and that's a good sign."

Of course, predicting North Korea's demise is tricky business. But based on interviews with defectors, research from Korea experts Stephan Haggard and Marcus Noland show attitudes about the regime are increasingly negative—especially among younger North Koreans. There's also a growing willingness to defy the government through everyday forms of resistance such as listening to foreign media outlets.

Options Action

The Reserve Bank of Australia indicates that it could put rates on hold for the time being and will only opt for further rate cuts, if necessary, says Sean Callow, senior currency strategist at Westpac.